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Tuesday, August 30, 2016

My Investment Philosophy - Knowledge, Discipline and Patience

Currently,
I have low financial liabilities and long term financial goals. So, I buy
stocks with the objective to hold them for long term horizon.

While identifying the stock
for investment, I focus on following parameter

Business – I look
for companies in flourishing sector. Then I select the companies with simple and
easy to understand business.

Companies - I prefer
the companies operating over long term in past. Thereby analyze its sustainable
competitive advantage (moat) and durability of that advantage. This is followed
by analyzing Company’s product portfolio to determine whether it commands
premium pricing?

Management – I look
for any increase or decrease in promoter stake in the company in recent years. I
prefer companies that are transparent and honesty in communication to
shareholders. I check whether the management is committed in its strategy. I
scan through annual reports to identify whether effective corporate governance
structure is in place. Management visions is analyzed by reading conference
call transcripts, Management Discussion and Analysis or interviews with leading
financial media.

Observing companies
product profile – I have inculcated that habit of observing the
products of the companies. When Patanjali products started getting greater shelf
spaces, I started tracking sale of FMCG gaints. I also compare company's
product with competitors and check customer's review on online shopping
websites as a part of stock analysis.

I have decided to invest portion of salary each month and
then spend the balance portion. I do not borrow to invest in equity

I study annual reports and other information about the
company from finance media to identify the next multi bagger stock.

I evaluate the stocks position by considering whether
the stock I am planning to buy or holding is affected by any of the behavioral
Bias like trend chasing, disposition effect, familiarity bias, Endowment or
other bias.

I have experienced that more I study about the company,
more I get biased about the stock. So, I have decided to make each investment
decision independent of previous decision.

Stock pick - Asian Paints

Asian Paints (AP) is in paints industry since 1945. AP business model is easy to understand.

Currently, it is a market leader in decorative paints, varnish and enamel with around 50% market share.

Its wide range of products (new product launches each year), geographies (customer in 65 countries) and wide distribution (30,000 dealers and 300 idea stores). AP is shifting from being only paints company to home décor company (adding modern kitchen space and bathroom fitting products). It has strong brand recallability.

Its promoter holding of 52.79% has been relatively constant. The management adheres to its core competency and have effectively integrated all mergers and acquisition. AP has effective corporate governance system in place.

AP has recorded 15.5% average annual revenue growth over 2007 - 2016 and average annual EBITDA growth of 19.2% during same period. It has consistently maintained Return on capital employed over 45% with positive free cash flow.